Knowing when to maximize your investment at the optimal time to ensure a comfortable retirement
Pulling the trigger on downsizing can be incredibly difficult. Our lives are dynamic, ever-changing. It can be hard to predict our future needs. What once was the perfect home for you and your family may no longer suit your lifestyle. For many, your home is a reflection of your passion, energy, and accomplishments, hosting many years of memories. It can be unclear for those who are not passing their home onto a family member to decide when is the best time to start downsizing.
“According to a recent Merrill Lynch survey of age 50+ retirees, 51% of those who have moved since retiring opted for a smaller home. Nevertheless, many retirees find it difficult to pull the trigger on downsizing. In fact, 64% of retirees plan to remain in their current home throughout retirement.” – homelight.com
The problem with waiting to downsize can mean that you might encounter preventable circumstances that could become more difficult to address the longer you wait. The unforeseen financial burden of large maintenance repair bills or the process of going through your personal belongings, along with the physically demanding process of packing and moving, can be daunting. Giving yourself ample time to address the latter will ensure a smooth transition while avoiding the potential financial burden of unexpected repairs.
So, when should you consider downsizing? The top 3 things to consider.
When your living expenses start to exceed your household income by 50%, due to a change in income, for example, this might be the time to begin considering downsizing.
While you are still working, your living expenses might fit comfortably within your budget. But as retirement comes near, you can experience a shift in your income that can put a strain on your budget. You might find it more challenging to support regular maintenance and unexpected repairs. Downsizing can reduce the pressure on your budget and help you avoid feeling the need to pick up a part-time job to make ends meet.
Living in a smaller space can reduce your mortgage payments, utilities, property tax, or maintenance and offer more budget to have fun! After all, you should be enjoying your retirement, not worrying about replacing a hot water tank.
Change in Lifestyle
Back in the day when your kids were building blanket forts in the living room, there were never enough bathrooms, and your teens were tussling over the remote in the TV room; there were times when even your spacious home felt too small to contain the chaos.
Those days, though some of your best memories, no longer represent your current lifestyle. Occasional visits from children and maybe even grandchildren are spaced between as their busy lives take them on their own adventure. Those spaces now sit unused, collecting dust. If you consider for a moment, you might find you only utilize a tiny portion of your home these days.
Now that you are only using a small portion of your home and your career no longer ties you to a specific location, downsizing might be the best next course of action.
Cashing in on your investments
Do you have an ample retirement fund set aside to support your living expenses and desired lifestyle after retirement?
“According to Statistics Canada, the median income (used instead of average to filter out effects of high-income earners) for senior households, where the highest income earner is 65 years old or more, is $65,300. This figure is pre-tax income. The after-tax median income is $61,200.” – wealthsimple.com
“Just 18 per cent of employed Canadians feel very confident that they will have enough income in retirement to live the way they would like and only 29 per cent of retired Canadians are very confident that their income will last for the rest of their lives.” – newswire.ca
Downsizing your home is one of those things you can do to enhance the lifestyle you hope to have. When you sell your home, that equity can be used to supplement your retirement through investments and generate a stream of income to carry you through your retirement years.
Early downsizing can free up income to invest in your retirement.
“For example, let’s say you pay $4,200 a month on your mortgage, principal interest, taxes, and insurance. If you sell and downsize 10 to 15 years before you retire, that’s $40,000 a year in housing costs that you could put towards your retirement instead.” – safetynet.com
But this investment strategy only works if you work with a top agent. A great agent can help you sell your current home for the most money possible. They will also make sure your new home is both affordable in monthly housing costs and inexpensive enough to leave you with a sizable chunk of equity to invest.
I understand that a transition is a significant life change, and I like to ensure the process is as stress-free as possible for my clients.